Pound awaits GDP reading

Office of National Statistics (ONS) will release final reading of third quarter GDP estimate. Pound traders are awaiting the release to take further cue from.

Past trends –

• UK GDP growth stands highest among developed economies, however that has not been sufficient enough to push pound higher as inflation remained low and services remain the only sector to have grown well above pre-crisis level.

• GDP growth reached highest level in second quarter of 2014, reaching 3.2% growth on yearly basis. Since then growth has somewhat waned. In second quarter of 2015, growth was 2.4% y/y. Third quarter was even weaker, 2.1% y/y.

Expectations today –

• Today’s reading is expected to show growth slow down to 0.5% q/q and 1.9% y/y.

Impact –

• Today’s growth report won’t be seen through hike scanner, instead it will be judged on Brexit. Though in fourth quarter, the date of referendum wasn’t fixed, a slowdown would be seen as an impact of Brexit fear.

• Though Pound is facing relentless selling pressure, weaker Dollar is expected to provide some support.

• Any marked slowdown below 1.7% y/y likely to increase selling pressure on Pound and to find support, GDP needs to surprise by 0.3% at least.

As referendum result is difficult to predict, we expect Pound to recover grounds on weaker Dollar and move higher towards 1.467 in the very near term with stop loss around 1.406.